Blended families are becoming increasingly common and often face several estate planning challenges. Consider the following scenario:
Don and Pat were married in 2000, and it was a second marriage for each of them. Don had 1 child from a prior relationship, and Pat had 3. Don and Pat had equal financial assets at the time.
While drafting their wills in 2009, Don and Pat agreed that all property would transfer to the survivor of Don and Pat on the death of the first of them. They also agreed that, on the death of the survivor of them, all property would be divided equally among their 4 adult children. Their wills were drafted accordingly and endorsed.
Five years later, in 2014, Pat passed away, leaving Don to inherit all of the couple’s property. In 2017, Don endorsed a new will. The new will did not include any mention of Pat’s children, and so Pat’s 3 children could not inherit anything from Don and Pat’s estate. Don’s singular child ended up inheriting all of Don and Pat’s property.
Nobody likes to think that their spouse would “cheat” their children out of their inheritance. Having said that, Don and Pat could have both protected their respective children by choosing to do things differently in their estate planning process:
Lifetime Trust for Surviving Spouse/Partner
One option would have been to hold the deceased partner’s assets in a lifetime trust for the benefit of the surviving spouse, with all remaining property in the lifetime trust then being divided equally among the four children once the surviving partner has passed away. This is a perfectly viable option; this guarantees that the monies belonging solely to the deceased never really ‘vest’ in the surviving spouse, and so there is certainty with respect to who the ultimate beneficiaries will be – in this case, the four children. However, there are also disadvantages to establishing a lifetime trust, not the least of which is the fact that the trust will not protect jointly held assets, or assets held solely in the name of the surviving spouse.
The other option that Don and Pat could have considered is mutual wills. Mutual wills are not just wills, but contracts. They are entered into with the full knowledge and understanding that neither party will be able to make a new will once their partner or spouse has passed away or has lost mental capacity to make decisions, and similarly, that the surviving spouse cannot frustrate the will by giving away estate assets during his or her lifetime. There exists a legally binding agreement with your partner or spouse to honour the present will. The obvious consequence of entering into a mutual will is that you will not be able to change your will once your partner passes away or loses mental capacity. However, mutual wills can protect against a surviving spouse’s estate dissipation, and safeguard the interests of all beneficiaries.
If your family is blended, you may wish to discuss these issues with your partner or spouse today. If you require estate planning assistance at any point along the way, please contact us at Estate Connection – we are always happy to help.